Zebra companies vs. Unicorn companies: Which Path Is Better for Both Entrepreneurs and Investors?
When people think about the American dream, they usually think about entrepreneurial endeavors that allow them to be free from corporate control. With that being said, the idea of starting and growing a successful business has been altered in the past 15–20 years. Everyone nowadays wants to become the next Facebook, Instagram, Twitter, Uber, or Airbnb, etc. This can put a lot of pressure on most people by setting expectations and the bar too high. People are ultimately setting themselves up for failure due to the fact that there are many factors and variables out of their control.
These Unicorn companies do inspire following generations, but their remarkable businesses can also stifle innovation. This occurs because people begin to look for life-changing solutions that a large, global population of people can utilize. While it is inspiring to see that young people have high aspirations to become Unicorn companies, it actually stops them from looking at the issues on a smaller scale. Entrepreneurs sometimes tend to neglect the basic needs and problems that impact certain niche target markets. However, this is where Zebra companies come in.
You may be asking, what is a Zebra company? According to the Zebra Company Growth Playbook, as defined by Founders First Capital Partners, Zebra companies generate annual revenues between $5 million and $50 million, require growth capital of $100,000 to $1 million, and have 5 or more revenue streams to serve a customer within a specific national target niche. Zebra companies may not be pure tech companies, but they are tech-enabled companies. Unicorn companies may satisfy a much larger market, but Zebra companies may provide more options for founders in underserved markets outside of the top venture capital markets in New York and Silicon Valley. Also, underrepresented Zebra company founders may have better access to capital. Sometimes their execution may be slower than Unicorn companies, but Zebra companies can provide more opportunity for more entrepreneurs.
Since most entrepreneurs strive to become Unicorn companies, they usually ignore the goldmine that is right in front of them if they sharpened their focus to help specific target markets. Zebra companies rise by observing the trends in the market and adapting to the demands of consumers. Unicorn companies attempt to disrupt the general market by introducing something new and innovative like Uber. The thing is, startups that try to become Unicorn companies usually die off quickly, with only a small number actually making it.
Unicorns may be revolutionary to society in general, but Zebra companies can outweigh them and have a larger impact on local communities. Zebra companies can improve their local communities by creating premium wage jobs while also utilizing resources within their local market. Thirty-five percent of U.S. jobs are created by Zebra companies and other small businesses. These jobs are a vital part of the U.S. economy and overall GDP. Zebra companies provide freedom to both the founders and their employees since they do not have to succumb to the struggle of working under a large conglomerate that treats you like a number. Employees of Zebra companies usually are happier and feel more fulfilled since they get to utilize their talents in a helpful manner. They feel like they matter to the company, which increases job satisfaction. The benefits of working under a Zebra company include smaller, more intimate working environments with diverse groups of people that work together towards a common goal.
Founders of these companies also tend to be average Americans who pursued their passions. Most of the Zebra companies are run by CEOs who are experts in their fields, and they usually have a bigger purpose than just themselves. These founders are able to monetize their passions because they better understand the markets that they are serving. Anyone can turn their hobby or passion in fitness, health, motor vehicles, music, education, etc. into a successful Zebra company. You do not necessarily need a full business background to excel. All you need to do is become an expert in your field and address the problems that the people in that industry are facing. If you are able to provide and fulfill the needs of your client base, you can quickly succeed.
While Unicorn companies may make the national news and generate a lot of buzz, Zebra companies are well represented in the Inc. 500/5000, which list the fastest growing private companies each year. When you review these lists, you find amazing companies that dominate their respective niche markets. To be successful, they’ve developed unique value propositions and solutions that delight a very targeted group of customers and are being rewarded with revenues north of $5 million annually.
Two great examples of Inc. 500/5000 Zebra companies in underserved markets with underrepresented founders are TomboyX, which specializes in unisex apparel, and RockMyRun, which is like Spotify for athletic and performance endurance music. Both have received growth funding to expand their businesses. Check them out.
What allows most Unicorn companies to flourish starts with some venture capital funding. Zebra companies often aren’t so fortunate to receive VC funding because VCs are looking for a bigger payday. However, there are many other funding options that Zebra companies can utilize to get where they are. This includes debt financing, but that can sometimes hinder the growth of a company to pay back the loan. A growing trend has been the move toward revenue-based financing, which means that the company will receive a loan with some money every month. All the company has to do is pay back a certain percentage of their revenues back on a monthly basis. Revenue-based financing helps fuel the necessary growth needed for these companies to become Zebras.
The impact Zebra companies have had on our society should not be ignored in this age of Unicorn entrepreneurial innovation. Entrepreneurs should take note of their success.